Cardiff-based IQE produces around 80 percent of the global supply of outsourced 'epi-wafers', a type of advanced material used in products from laser hair removal to the 3D-sensing camera in the latest iPhone X.

However IQE, which has operations in the United States, was hit by tax losses in the country thanks to reforms signed by U.S. President Donald Trump late last year, forcing the firm to take a 7 million pound ($9.8 million) tax charge in 2017.

Sales of wafers, which make up most of IQE's revenue, rose 21 percent to 152.6 million pounds last year, while the gross margin on wafer sales climbed to 24.1 percent from 21.8 percent in 2016.

The company said revenue from its photonics business doubled to 47.6 million pounds, and it expected growth of 35-60 percent in the business this year.

IQE has been facing criticism from Muddy Waters and ShadowFall Capital &amp; Research - so-called short-sellers who position themselves to gain when share prices fall - over loss-making joint ventures with universities in Cardiff and Singapore they say has boosted IQE's profits.

Paul Morland, an analyst at broker Canaccord Genuity, noted licensing payments from these joint ventures to IQE fell to 1.9 million pounds last year from 6.7 million in 2016, "significantly increasing the quality of earnings".

CEO Drew Nelson told Reuters the joint venture with Cardiff University was on track to break even in 2018, while the Singapore one was already profitable after fees paid to IQE.

IQE's free cashflow, another issue raised by short-sellers in February, turned negative, recording an outflow of 6.5 million pounds from an inflow of 1.1 million in 2016.

"Their argument would be they are investing in future growth but it is another year where they haven't generated any cash," said ShadowFall founder Matthew Earl.

Short positions in IQE disclosed with the UK regulator hit 12.4 percent on Jan. 23, among the highest for any UK company, before falling to 8.2 percent on Tuesday.

IQE shares, which have risen more than six-fold since mid-2016 as investors bet the company would benefit from its work for Apple, were down 4 percent at 1244 GMT.

($1 = 0.7123 pounds) (Reporting By Justin George Varghese in BENGALURU and Alasdair Pal in LONDON; Editing by Gopakumar Warrier and Mark Potter)